The digital era has created a peer-to-peer economy, forcing organizations to re-think business operations from the ground up. As Ray Wang, CEO of Constellation Research, explores in his newly released book, Disrupting Digital Business, the leaders in this new economy have moved from selling products or services to focusing on experiences and outcomes.
We recently asked Ray a few questions about why digital transformation is an urgent priority, and what strategic HR professionals and other business leaders can do to thrive in the age of Digital Darwinism:
Visier: You define digital transformation as the “methodology in which organizations transform and create new business models and culture with digital technologies.” Why should digital transformation be an urgent priority for almost every company in every industry?
Ray Wang: A digital divide has emerged among global organizations. With 52% of the Fortune 500 either merged, acquired, gone bankrupt, or fallen off the list since 2000, almost all organizations in almost all industries are focused on identifying, testing, and executing on disruptive business models. Technology serves as an enabler, but the shift to digital business models is what’s creating this disruption in the marketplace.
In addition, the top three companies in most fields have at least 44% of the market share, and 40 to 77% of the profits. Market leaders in this marketplace have built digital business models that have disrupted not only their industries, but adjacent industries. In fact, this digital Darwinism has been dire to those who wait.
Visier: How can a digital mindset help any company become a disruptor rather than the disrupted; the next Uber instead of the next Blockbuster?
Ray Wang: The digital mindset starts by thinking not only outside the box, but by looking at how other industries and other models can be applied to one’s own space. What we traditionally view as innovation is almost an incremental process of continuous refinement until we reach a Eureka moment. The disruption required today is transformational innovation which can impact many business models at once. For example, we’ve identified that the iPhone has disrupted at least 27 business models. Products such as navigation devices, cameras, camcorders, music, personal digital assistants, film development, compasses, and even flashlights have faced the assault of such disruption.
To get to this mindset, organizations have to build a digital DNA. This requires the promotion and support of digital artisans. Digital artisans can balance the science, technology, engineering, and math skills with the design aesthetic, anthropology, philosophy, and systems thinking required for business model design. In essence, this is right brain meets left brain. You want balance on the team in order to achieve this level of competency.
Visier: How have formerly old-line companies evolved with digital disruption and what benefits did they reap?
Ray Wang: A great example is at GE, where power and water has used great math and design to tackle the issue of power generation. The metric that matters most for them is uptime. They now have the ability to predict from 8 to 10 days when a power line is going to go down based on a number of factors such as temperature, wind speed, ground vibration, tensile strength, humidity, etc. This is a great example of how sensors and analytical ecosystems can help GE deliver on new business models and address complex industrial internet issues.
Another example is Marriott. They’ve pioneered a customer experience culture through their Marriott Rewards program where the spirit to serve goes deep for Marriott Rewards members. This ability to create not only a consistent experience across all properties and brands, but also find ways to surprise and delight customers is key to building the advocacy required in a digital world.
In this digital, on demand world, we no longer sell just product or services, we deliver on brand promises. This requires a focus on experiences, and outcomes.
Visier: How will this disruption change the way we make decisions about talent?
Ray Wang: We need to search for digital artisans. HR managers will need to balance out right brain and left brain folks; the big thinkers and the doers. But in the end, the goal is to create a culture of Digital DNA across all organizations.
Visier: What are some other key takeaways for strategic HR leaders and people managers?
Ray Wang: One of the areas where we have to develop is the on-demand talent pool. The recognition that the expertise no longer lies within the employee base but inside the P2P (peer-to-peer) networks of employees. If employees can recommend their company’s product or service, you have employee advocates willing to share their personal networks for the company’s gain.
Visier: What are networked economies and why will they be increasingly essential?
Ray Wang: Individuals and organizations can massively influence the market on their own, but until they plug in to networked economies, they’re not going to realize their full potential. It’s happening right now. We’re just at the beginning of the chaos and the craziness of what will happen when we connect 75 or 80 billion devices by 2020. We’ll be seeing almost three billion people on social networks by 2020. This massive hyper-connectivity is driving what we predict to be somewhere between $70 trillion and $80 trillion in commerce by 2020.
Massive change is happening, and a lot of it is because everything we touch, everything we connect, everything we create results in digital exhaust. This digitalization of everything we touch changes the way we interact, because we can connect with a level of efficiency that we couldn’t before, and we can easily bypass any unnecessary friction. These networked economies are disintermediating, or cutting out the middleman, in every market they enter. We’re moving from experiences toward more personalized interactions than we’ve ever had before.
Visier: Why are the common customer relationship terms B2B and B2C giving way to a new model of P2P or People to People networks?
Ray Wang: The world can no longer be defined as business-to-business (B2B) or business-to-consumer (B2C).
The power of digital has enabled a better P2P or people to people movement that eliminates middlemen and all the transaction costs that sit between you and a product/service or someone else. This P2P movement is driving the on-demand economy for services such as Task Rabbit, and for goods such as Etsy, and for room nights such as Air BnB. P2P is happening as well in lending and in payments and this is a growing trend because we are now dealing with individuals and the networks they belong to. This is different than just servicing a single individual with no consequences.
And when that middleman and other barriers are taken away, you can connect with individuals who actually know what they’re doing and avoid a middleman. You can connect with systems that have better pricing information. This is the transformational power of digital that organizations can now unlock.
Visier: When we hear buzzwords like “the cloud” and “big data” are we missing the main big picture point of the full power of digital?
Ray Wang: Definitely. The cloud and big data provide powerful digital technologies but they are only enablers. The cloud provides unlimited access to storage and compute power. Big data helps brings insights to bear and helps identify patterns we may not have discovered. The full power of digital is far broader. First, it comes from creating a business model that provides an on-demand service at not only the lowest increment, but also enables bundles across many outcomes. Second, the full power of digital comes when we have direct to the consumer or even people to people models which strip out the middleman and the friction of transaction costs. With a people to people model, each person can go direct to each other with as little interference as possible.
Visier: Why can’t digital transformation be outsourced or delegated to a programming team or department?
Ray Wang: Digital transformation has to come from within the company. This is a business model, and a cultural, and technology shift. There’s no way to outsource that.
While digital may be applied as an adjective to every movement or trend, I define digital transformation as the methodology in which organizations transform and create new business models and culture with digital technologies.
“Digital Transformation is the methodology in which organizations transform and create new business models and culture with digital technologies”
To elaborate, transformation arises when organizations apply a design mindset to craft new experiences and outcomes. As organizations move from selling products and services to keeping brand promises, the digital era requires a high degree of trust and transparency that supports and augments brand authenticity. Digital technologies provide rich data sets which can be analyzed to surface up patterns of insight. That insight enables organizations to easily deliver on mass personalization at scale (i.e. segment of one) by improving contextual relevancy. Contextual relevancy (i.e. right time relevancy) built on roles, relationships, business process, location, time, and sentiment provide a foundation to create intention driven experiences and outcomes.
Success in digital transformation requires organizations to build a culture that supports a digital DNA and development of digital artisans who can navigate between the right brain and left brain world. The result is the organization’s capacity to create new business models or augment existing business models that disrupt the status quo; and sense and respond in real-time to market shifts.